Domestic lenders are safe from Adani Group's fall: RBI, Moody's
Adani Group has been under the microscope ever since Hindenburg Research published a report accusing the conglomerate of stock manipulation and accounting fraud. The report also pointed out the group's sky-high debts. This resulted in many questioning the exposure of banks to the conglomerate. Now, regulators and credit rating agencies have come out in support of domestic banks.
Why does this story matter?
- The Indian banking sector has seen some unforgettable fraud cases. From Vijay Mallya to Nirav Modi, many businessmen have taken advantage of the country's banking system's lack of oversight.
- When Hindenburg called attention to Adani Group's debt, the limelight naturally fell over the banks that granted the conglomerate loans.
- However, Adani Group's story is a bit different from previous cases.
Domestic banks' exposure is not very significant: RBI Deputy Governor
According to Reserve Bank of India (RBI) Deputy Governor MK Jain, domestic banks' exposure to Adani Group is not very significant. The exposure to shares is "insignificant," he added. Jain said that the exposure of domestic banks is against "underlying assets, operating cash flows, and projects under implementation." It is not based on "market capitalization," he further added.
Banks have complied with exposure guidelines: RBI Governor
RBI Governor Shaktikanta Das spoke about the resilience of the Indian banking sector. Based on an assessment by RBI on the exposure of domestic banks to Adani Group, he said that banks have complied with exposure guidelines. He added that India's banking sector is much stronger and more resilient "to be affected by a case like this."
Moody's noted that exposure is not large enough
Moody's Investor Service, one of the big three credit rating agencies, echoed the sentiment of RBI on the exposure of domestic banks to Adani Group. It noted that the exposure of domestic lenders to the conglomerate is "not large enough." According to the rating agency, the exposure is less than 1% of the total loans banks have granted.
Fitch agrees with Moody's assessment
Fitch, another noted credit rating agency, agreed with Moody's assessment. It, however, estimated the exposure to be 0.8%-1.2% of total loans. The rating agency added that these loans are unlikely to be written off, as they are tied to performing projects.
Domestic banks have enough headroom at current rating levels: Moody's
Moody's, however, warned that if Adani Group fails to access funding from the international market, domestic banks may have to step in. This, in turn, will increase their exposure to the conglomerate. The rating agency said that even if lenders have to provision against exposures, it will not affect their viability ratings, as they have enough headroom at their current ratings.
Adani Group stocks bullish for two days in a row
Meanwhile, Adani Group stocks have been bullish in the last two trading sessions. The conglomerate's decision to prepay $1.11 billion of loans on shares and positive statements from lenders and credit rating agencies seem to have uplifted investor mood. Seven out of 10 Adani firms, including Adani Enterprises (20%), Adani Ports (8.34%), and Adani Transmission (5%), registered gains on Wednesday.